Dream World ("the company") is a leading independent game publisher in China. As a game company that specializes in operating a long life cycle, it has accumulated its own deep issuing and operating capabilities and R & D foundation in the industry. In addition to the R & D capabilities accumulated through long-term ploughing in the game industry, the company's own user community operation tool Fanbook has become an important element in building its game ecology, significantly prolonging the game life cycle and improving the possibility of IP realization. Dream World first started as an agent of high-quality overseas games. The games issued and operated by the company in the past have the characteristics of long life cycle, including "Angry Birds", "Fruit Ninja", "Temple Run", "Metro Parkour" and "Dream Garden".

And Monument Valley. Among them, "Temple Run" and "Metro parkour" have made new growth breakthroughs through efficient operation for more than 10 years.

With the blessing of Fanbook, a user community operation tool built by the company itself, Dream World has successfully made its longevity game develop again. The company's current long-term game portfolios include Temple Run 2, Metro Parkour and Dream Garden. Leveraging Fanbook's influence in the game user community, these games continue to generate new growth opportunities. Against a backdrop of weakness in the overall game industry, the number of monthly active users of "Temple Run 2" reversed the market growth in 2022. On the other hand, Metro parkour has achieved growth in the number of daily active users and running water through efficient operation activities and the introduction of new play elements. Throughout 2022, Metro Parkour has been optimized and updated many times, greatly enhancing the player experience. With the help of a summer co-creation campaign launched by Fanbook, the decade-old parkour game returned to the top of the iOS download list for 33 consecutive days in 2022. During the Spring Festival in 2023, Metro parkour achieved the highest number of daily active users, exceeding 10 million, and its monthly active users also exceeded 100 million.

We believe that after clearing out the games with low returns, the games developed by the company can bring the company more revenue growth than expected in the market, and its profitability can be significantly improved in the short term. Based on the company's financial performance in the past two years, the market believes that the games currently released by the company are beginning to focus on marketing rather than research and development, which is not suitable for the current environment of limited version numbers and increased competition in China's game industry. At the same time, the company has made huge losses in research and development and business attempts in different types of games in the past few years, and there are widespread concerns about the improvement of the company's profitability. In fact, after several years of trial and error and business adjustment, the company has now determined the direction of game development that can support its continued profitability, specializing in developing competitive games that it is good at. The upcoming release of the new self-research game "Karabichu" is expected to bring great commercial value to the company. We expect the company to turn a profit in the short term and significantly improve its cash flow within a year.

The much-anticipated self-developed shooting game "Karabichu" was officially released on August 3, 2023, marking Dream's second attempt in the field of self-research after the successful release of "Glory all-Star". Karapichu received unusually positive feedback before its release, showing its potential to become a flagship game and could drive the company to achieve significant growth. Before its official release, Karabichu had attracted widespread attention and received rave reviews from the gaming community and social media platforms. As of August 3, 2023, Karabichu (PC version) had about 6.8 million pre-registrations on its official website, more than 695000 pre-registrations on TapTap and more than 948000 pre-registrations on Bilibili Inc.. In terms of rating, as of August 3, 2023, the score of "Karabichu" is 8.5 on TapTap and 8.7 on Bilibili Inc..

Shooting games have a broad and profitable market potential overseas. "Karabichu" stands out with its unique two-dimensional style and unique game-playing mechanism, giving it a competitive advantage. In addition, Tencent's participation in the distribution and operation of the game is expected to build a solid game ecosystem, ensure fair competition, solve the problems of cheating and unauthorized modification, and maximize its commercial value. The game focuses on the PVP game of fair competition among players, and its commercialization mainly depends on players' purchase of game passes, characters, character skins, weapons and special effects.

We believe that the game has excellent content and innovative game play, and its highly entertaining and fair competitive game play is very suitable for e-sports event operation. We predict that Karabichu will contribute at least RMB 600 million in gross profit to the company in 2023, and revenue is expected to continue to grow with the expansion of the game ecology and the expansion of the international market.

Considering that some low-return businesses and the reduction in revenue caused by the divestiture of projects from listed entities offset the new revenue generated by game self-research, we expect the company's overall revenue to remain relatively stable in 2023, similar to that in 2022. However, we expect a significant increase in revenue from 2024. Overall, we expect the company's revenue to grow by 0.5%, 19.3% and 11.0% year-on-year, respectively, from 2023 to 2025. We expect that Fanbook's enabling of the company's internal operations will contribute to the growth of internal private domain user traffic and significantly reduce the channel cost of game distribution, thereby improving the company's profitability. Taking into account the future release of new self-developed games and the expansion of self-developed games to overseas markets, we expect the company's gross profit margin to increase steadily, and we predict that the net profit rates of Dream World from 2023 to 2025 will be 6.3%, 14.8% and 16.6%, respectively. We believe that Dreamland's long-life-cycle games will continue to generate stable income, while its self-research capabilities will create new sources of income growth from time to time. At present, we value the company at 2.3times 2023, with a reasonable market capitalization of about HK $6.8 billion, which is equivalent to 36.1x 2023p and 13.4x 2024p / e.